Mutual funds a general overview

A mutual fund is a professionally managed funds that pools money from many investors to purchase securities. Mutual funds provide Asset diversification Diversification involves the different sector of investments within a portfolio and is used to manage risk.

 diversification: A fund diversifies holding many securities; this diversification decreases risk.

By purchasing mutual funds, you are provided with the immediate advantages of instant diversification and asset allocation without the large amounts of cash needed to create individual portfolios.The professional fund manager select fund based on company profile & market condition for capital appreciation.

Types of fund based on nature:

1.Closed-end fund: A closed-end fund (CEF) or closed-ended fund is a collective investment model based on issuing a fixed number of shares which are not redeemable from the fund

2.OPEN END FUND: Open-end fund (or open-ended fund) is a collective investment scheme that can issue and redeem shares at any time. An investor will generally purchase shares in the fund directly from the fund itself, rather than from the existing shareholders.

Type of fund based on portfolio:

1. Equity fund:Funds that invest primarily in stocks & shares companies it could be manufacturing IT, Construction etc . Generally, the investment objective of this class of funds is long-term capital growth.eg SBI Blue chip, Mirae asset emerging bluechip, reliance midcap                       Furthermore, Equity Funds can also be divided as per Market Capitalisation, i.e. how much the capital market values an entire company’s equity. There can be Large Cap, Mid Cap, Small or Micro Cap Funds. High risk but high returns are generated over a long period of investment.
2. Debt fund:Debt funds are for investors who seek regular income from investment and also looks for low risk. Major Investment are done in govt securities, debt bonds
3. Balanced fund:The objective of these funds is to provide a balanced mixture of EQUITY and DEBT.  The portfolio of balanced funds comprises of investment  in both fixed income and equities.

Equity funds have the potential to offer higher returns, but with risk, whereas debt funds offer relatively stable but moderate to low returns.

*Investment in mutual fund are subject to market risk.

Starting an investment in early age gives you the long term appreciation as there is time value of money.